Financial Service Providers (FSPs) who ask their clients to sign blank forms or have incomplete documentation are liable for severe penalties.
In Ombud cases, FSPs asked their clients to sign blank client records of advice, replacement forms, application forms and consent forms. Some said this was to have the form on file so they could complete a transaction if the client was abroad. Others wanted to save the client time and planned to fill in the form after the meeting. In other instances, the FSP sent the client a form to complete and sign, and the client returned a blank or incomplete but signed form.
What the FAIS Act and General Code of Conduct states
Section 7(2) of the Code states that, “No provider may in the course of the rendering of a financial service request any client to sign any written or printed form or document unless all details required to be inserted thereon by the client or on behalf of the client have already been inserted.”
This implies that you may not request a client to sign a blank application form that you complete later on behalf of the client. You may complete a form for a client, but the client must check the information and sign the form.
A document should also not be dated after a client has signed it. Best practice is to return a signed form to a client by e-mail, so there is a record of communication with the client, and then destroy the incomplete copy.
The penalties of noncompliance with the FAIS Act are steep. Offenders face fines of up to R1 million and/or imprisonment for up to 10 years, as well as the withdrawal of the FSP’s licence or debarment of a representative. All staff in an FSP must therefore be aware of the seriousness and possible implications if a client signs a blank or incomplete form and fulfil their duty to comply with this provision.
Recommendations to comply: forms and documentation
To comply with aspects of the FAIS Act, we recommend that you take the following actions when completing client forms and documentation:
- Disclosure, quote and application forms (Section 8 of the Code)
Ask clients to sign at each paragraph that contains disclosure details of the product, and not only on the first or last page. These paragraphs include:
- an accurate description of the product type, for example Retirement Annuity Fund instead of merely stating a ‘retirement plan’
- cost of purchase. The fees applicable to each advisor, product provider and aspect of the product must be disclosed in monetary terms. If the basis of the calculation is provided, this should be expressed as a percentage of the amount, such as the investment amount. The client must be able to calculate the amount.
- how easily the funds invested can be realised
- penalties for early cancellation
- special terms and conditions
Provide clients with the disclosure documentation before they sign an application form and keep a copy of the disclosure documents as part of your records. This also applies to short-term insurance and medical scheme products.
All documents should be dated as and when a client signs the documents. This is crucial evidence in disputes between clients and FSPs.
- Needs analysis – (Section 8(1)(b) of the Code)
Completely fill in all the spaces in your needs analysis tool, otherwise you are omitting one or more aspects concerning the client’s situation. When you have all the necessary client information, analyse it and base your recommendation on the information. Find a product that suits the client instead of making a client fit a product, as this helps prevent client complaints.
- Record of advice – (Section 9(1) of the General Code of Conduct)
When compiling your record of advice, your form should prompt you to provide:
- a summary of information and material on which your advice is based
- the financial product(s) considered. If you have contracts with several product providers, you need to specify the other potentially appropriate products you discussed with the client.
- the financial product(s) recommended, with an explanation of why the product(s) is likely to satisfy the client’s needs and objectives. It is important to match the information obtained from the client during the needs analysis process with the product recommended.
It may be tempting to complete a record of advice as quickly and in as few words as possible. However, the record of advice is the most important document between you and your client, and is vital to prove your advice was appropriate considering your client’s identified needs and/or objectives. The record of advice must therefore cover all the aspects above.
By obtaining clients’ signatures in the right manner and ensuring all documents and forms are filled in correctly and completely, your clients will be able to acknowledge your integrity. You will also be well positioned to defend yourself should a client complain.